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Ninth Circuit:
Nurses May Be Entitled to Overtime Despite Yearly Salary
Majority Says Summary Judgment in Favor of Employer Is Improper Because Factual Disputes Exist: Bea Says in Partial Dissent That Facts Show Plaintiffs Are Paid by the Hour and Are Therefore Entitled to Time-and-a Half Pay
By a MetNews Staff Writer
A city employer is not entitled to summary judgment in class actions brought by staff nurses asserting that they are hourly employees improperly denied overtime pay—despite the existence of annual compensation figures in employment agreements and salary ordinances—because factual disputes exist as to how and why some plaintiffs are paid less than their promised full-time wages, the Ninth U.S. Circuit Court of Appeals held yesterday.
The holding drew a partial dissent.
At issue are provisions of the Fair Labor Standards Act (“FLSA”) which provide that employees should generally receive time-and-a-half pay for working overtime unless an employee is a salaried professional.
Under 29 C.F.R. §541.602 (“§602”), an employee, subject to certain exceptions, “will be considered to be paid on a ‘salary basis’…if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.”
The dispute arose due to a practice by the city’s payroll department of translating each nurse’s annual salary, as set forth in the governing documents, into an hourly rate by dividing the yearly sum by the number of hours a full-time health worker would expect to work in a year. A nurse working 40 hours per week will receive the full published salary but one who chooses to work fewer hours will be paid less on a proportionate basis.
Nurses can also opt to earn additional pay by working night shifts or per diem shifts, which pay a premium on top of the contracted wage.
The court said that a factfinder must look beyond conclusory contractual language to analyze how employees are actually paid.
Two Class Actions
Two class actions were filed in federal court based on the failure of San Francisco to pay staff nurses overtime wages—one filed by plaintiff Tatyana Litvinova in 2018 and the other brought by Kirsten Silloway, Christa Duran, and Brigetta van Ewijk in 2020. Given the factual similarity between the two cases, Chief District Court Judge Richard Seeborg for the Northern District of California treated them as related actions.
On cross-motions for summary judgment, Seeborg ruled in favor of the city, concluding that the nurses are paid on a salary basis and are exempt from the FLSA overtime requirements based on the “dispositive evidence” of the published salary ordinance. The cases were consolidated on appeal.
Senior Circuit Judge David F. Hamilton of the Seventh U.S. Circuit Court of Appeals, sitting by designation, wrote the opinion reversing the judgment. He said:
“The City’s compensation system does not necessarily flunk the salary basis test, but material factual questions remain in dispute regarding whether the City satisfied the test as a matter of practice….[P]laintiffs offered evidence showing that the City did not record them as working hours consistent with their full-time equivalencies in a significant number of pay periods. Those discrepancies raise material factual questions as to whether the staff nurses received their predetermined amounts of compensation in those pay periods. We reverse and remand this case for those factual issues to be resolved.”
Circuit Judge Morgan Christen joined in the opinion. Senior Circuit Judge Carlos T. Bea wrote separately, concurring in the reversal but arguing that summary judgment should be granted in favor of the plaintiffs as the record established that they were hourly employees.
Salary Basis Test
An employer may compensate employees “on an hourly, a daily or a shift basis” without jeopardizing the salary designation, under 29 C.F.R. §541.604(b) (“§604(b)”), if the arrangement includes “a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked” and there is a “reasonable relationship” between the employee’s salary and the money actually earned.
Hamilton explained that private employers are prohibited from making partial-day deductions for their salaried employees but public employees are permitted to do so by 29 C.F.R. §541.710 (“§710”) out of a concern for proper stewardship of taxpayer monies. The jurist remarked that “section 710 does not, however, give public employers free rein to make pay deductions” and noted:
“[A] public employer must give its employees the opportunity to earn predetermined amounts on a weekly or less frequent basis, a prospect that will be fulfilled so long as employees do not miss work for unexcused reasons. In both situations, neither private nor public employers can cause employees to receive less than the predetermined amounts of compensation. Any deduction must be due to an employee’s own actions.”
The judge pointed out that an expert report submitted by the city revealed at least 72 employee pay periods in which staff nurses worked fewer hours than their full-time shifts, resulting in lower pay, and reasoned:
“Perhaps there are permissible reasons for each discrepancy, but the City has not provided evidence proving them. Without such evidence, factual questions remain as to whether the staff nurses were provided the opportunity to work their full-time equivalencies in these pay periods and, consequently, whether the staff nurses were paid their predetermined amounts of compensation. Those factual questions lie at the heart of the salary basis test and preclude summary judgment in favor of the City.”
The defendant argues that even if a few errant deductions were made, the plaintiffs have not established that it maintains an actual practice of paying staff nurses less than their promised salary. Unpersuaded, Hamilton wrote:
“Such a high number of improper deductions could support a finding that the City maintains an actual practice of making improper deductions. Plaintiffs identified evidence showing that the City made improper deductions in about 3.2% of employee pay periods. That rate is higher than in other cases where isolated errors did not indicate an actual practice.”
Bea’s View
Bea wrote:
“The district court’s grant of summary judgment in favor of the City and County of San Francisco (City) should be reversed. On that, the majority and I agree. But…I would hold that there is no genuine dispute of fact….The Nurses are not salaried…because the City does not pay the Nurses a predetermined amount of compensation each week that is independent of the number of hours they work.”
He reasoned:
“[T]he majority relies on § 602(a)’s neighbor many doors down—§ 710—a lesser known, rarely litigated regulation ….Because § 710 applies solely to public employers, and because it allows them to make partial-day deductions for hours not worked, the majority reasons that public employers may calculate an employee’s pay at an hourly rate without converting him into a non-salaried employee, while private employers cannot.”
The jurist continued:
“What is left of § 602(a)’s text in future cases such as this one, where an employer…reduces its workers’ compensation to an hourly- or daily-rate under § 710 or § 602(b)? Not much it seems. ‘Every part’ of § 602(a) that describes when an employee can be considered salaried works ‘hand in hand’ with § 602(a)’s predetermined-amount requirement….”
He declared:
“The City is free to pay the Nurses solely by the hour, but that does not satisfy the salary-basis test….Until the City guarantees them a fixed amount of pay that does not depend on the days or hours they work, the Nurses are not salaried under the FLSA, and the City must pay them overtime under that statute. For these reasons, the district court entered summary judgment for the wrong party. I would reverse and remand with instructions to grant summary judgment in favor of the Nurses on their claim for overtime compensation under the FLSA.”
The case is Silloway v. City and County of San Francisco, 22-16079.
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